Scottish Mortgage Investment Trust (LSE: SMT) shares have been battered in the last month. The FTSE 100 has taken a 0.6% hit but the Baillie Gifford fund is down 8.2%.
That wipes out a large chunk of gains the stock had made this year. While it’s still up 4.6% year to date, its recent performance has put a spanner in the works. Or has it?
The investment trust has fallen victim to the wider market sell-off. But I reckon its shares now look like cracking value.
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I already own some shares. But if I had the cash, I’d rush to buy some more. Here’s why.
Trading at a discount
Even though the trust is still up for the year, Scottish Mortgage looks cheap on paper. I say that because the market price of its shares is lower than its net asset value (NAV).
As I write, it trades at an 8.5% discount to its NAV. That means, in theory, I can buy slices of the companies it owns for cheaper than their market rate. That sounds like a bargain to me.
What’s even better is that this includes some top-quality businesses such as Nvidia, Amazon, and Tesla, to name just a few.
Focus on artificial intelligence
Those three companies also all have one thing in common. And that leads me to why I further like the look of Scottish Mortgage today: its focus on artificial intelligence (AI).
We’ve seen the waves that Nvidia has made in the markets in recent months with its cutting-edge technology. And Amazon and Tesla need no introduction when it comes to their potential.
With major growth predicted for the AI sector, Scottish Mortgage should benefit from this. Last year the AI market grew beyond $184bn, up from $50bn in 2023.
By 2030, it’s expected to be worth a staggering $826bn. Wow.
Volatility
Of course, that doesn’t come without risks. The stocks that Scottish Mortgage holds, as exciting as they may be, are prone to volatility. We’ve seen this recently when Nvidia fell 8% in just a couple of days and Tesla took a 14% hit amid fears of economic trouble across the pond.
That feeds more widely into its focus on owning growth stocks, which comes with threats. For example, such stocks don’t tend to thrive in high interest rate environments as they’re heavy with debt, which becomes more difficult to service.
Rate cuts have begun in the UK and seem near in the US, which is good for the trust. But they’re still relatively high.
Long-term approach
Finally, I’m a long-term investor. Therefore, its focus on an industry predicted to see long-term growth, coupled with its approach to “maximise total returns over the long run”, works perfectly for me.
To achieve that, it aims “to own the world’s most exceptional public and private growth companies”. As an investor who buys stocks with the aim of holding them for at least five to 10 years, and ideally a lot longer, that suits me down to the ground.
Scottish Mortgage has proved how effective this has the potential to be. After all, it did first invest in Tesla back in 2013 for just $6 a share.
